REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To MAXXAM Inc.:

          We have audited the accompanying consolidated balance sheets of
MAXXAM Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations and
cash flows for each of the three years in the period ended December 31,
1997.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

          We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

          In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
MAXXAM Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

          Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole.  The schedule
listed in Item 14(a)(2) of this Form 10-K is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements.  This schedule has
been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.


                                        ARTHUR ANDERSEN LLP
Houston, Texas
February 27, 1998


                        MAXXAM INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                           December 31,
                                                   --------------------------
                                                        1997          1996
                                                   ------------  ------------
<S>                                                <C>           <C>
ASSETS
Current assets:
     Cash and cash equivalents                     $      164.6  $      336.6 
     Marketable securities                                 84.6          50.3 
     Receivables:
          Trade, net of allowance for doubtful
               accounts of $5.9 and $5.2,
               respectively                               255.9         200.7 
          Other                                           126.3          85.9 
     Inventories                                          629.6         634.8 
     Prepaid expenses and other current assets            175.1         169.1 
                                                   ------------  ------------
               Total current assets                     1,436.1       1,477.4 
Property, plant and equipment, net of accumulated
     depreciation of $845.6 and $769.5,
     respectively                                       1,320.9       1,297.9 
Timber and timberlands, net of accumulated
     depletion of $169.2 and $154.6, respectively         299.1         301.8 
Investments in and advances to unconsolidated
     affiliates                                           159.5         179.5 
Deferred income taxes                                     479.9         419.7 
Long-term receivables and other assets                    418.7         439.4 
                                                   ------------  ------------
                                                   $    4,114.2  $    4,115.7 
                                                   ============  ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:

     Accounts payable                              $      187.3  $      201.5 
     Accrued interest                                      68.7          61.5 
     Accrued compensation and related benefits            159.3         158.7 
     Other accrued liabilities                            174.9         154.1 
     Payable to affiliates                                 82.9          98.1 
     Short-term borrowings and current maturities
          of long-term debt                                69.0          69.6 
                                                   ------------  ------------
               Total current liabilities                  742.1         743.5 
Long-term debt, less current maturities                 1,888.0       1,881.9 
Accrued postretirement medical benefits                   730.1         731.9 
Other noncurrent liabilities                              586.3         589.4 
                                                   ------------  ------------
               Total liabilities                        3,946.5       3,946.7 
Commitments and contingencies
Minority interests                                        170.6         219.8 
Stockholders' deficit:
     Preferred stock, $.50 par value; 12,500,000
          shares authorized; Class A $.05
          Non-Cumulative Participating Convertible
               Preferred Stock;
               shares issued:  669,701                       .3            .3 
     Common stock, $0.50 par value; 28,000,000
          shares authorized; shares issued:
          10,063,359 and 10,063,885, respectively           5.0           5.0 
     Additional capital                                   222.8         155.9 
     Accumulated deficit                                 (118.5)       (185.6)
     Pension liability adjustment                          (3.3)         (5.1)
     Treasury stock, at cost (shares held: 
          preferred - 845; common - 3,062,762 and
          1,400,112, respectively)                       (109.2)        (21.3)
                                                   ------------  ------------
               Total stockholders' deficit                 (2.9)        (50.8)
                                                   ------------  ------------
                                                   $    4,114.2  $    4,115.7 
                                                   ============  ============

<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>


                        MAXXAM INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)



<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                            ----------------------------------------
                                                 1997          1996          1995
                                            ------------  ------------  ------------
<S>                                         <C>           <C>           <C>
Net sales:
     Aluminum operations                    $    2,373.2  $    2,190.5  $    2,237.8 
     Forest products operations                    287.2         264.6         242.6 
     Real estate and other operations               68.7          88.2          84.8 
                                            ------------  ------------  ------------
                                                 2,729.1       2,543.3       2,565.2 
                                            ------------  ------------  ------------
Costs and expenses:
     Costs of sales and operations:
          Aluminum operations                    1,962.6       1,869.1       1,798.4 
          Forest products operations               162.0         148.5         127.1 
          Real estate and other operations          42.4          67.4          65.4 
     Selling, general and administrative
          expenses                                 190.0         203.5         195.8 
     Depreciation and depletion                    116.0         123.5         120.9 
     Restructuring of aluminum operations           19.7             -             - 
                                            ------------  ------------  ------------
                                                 2,492.7       2,412.0       2,307.6 
                                            ------------  ------------  ------------

Operating income                                   236.4         131.3         257.6 

Other income (expense):
     Investment, interest and other income          49.7          41.1          18.2 
     Interest expense                             (201.4)       (175.5)       (172.7)
     Amortization of deferred financing
          costs                                    (10.2)         (9.0)         (8.6)
                                            ------------  ------------  ------------
Income (loss) before income taxes and
     minority interests                             74.5         (12.1)         94.5 
Credit (provision) for income taxes                  6.9          44.9         (14.8)
Minority interests                                 (16.2)         (9.9)        (22.2)
                                            ------------  ------------  ------------
Net income                                  $       65.2  $       22.9  $       57.5 
                                            ============  ============  ============

Basic earnings per common share             $       7.81  $       2.63  $       6.60 
                                            ============  ============  ============

Diluted earnings per common and common
     equivalent share                       $       7.14  $       2.42  $       6.08 
                                            ============  ============  ============



<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>

                        MAXXAM INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                          (IN MILLIONS OF DOLLARS)


<TABLE>
<CAPTION>

                                                     Years Ended December 31,
                                            ----------------------------------------
                                                 1997          1996          1995
                                            ------------  ------------  ------------
<S>                                         <C>           <C>           <C>
Cash flows from operating activities:
     Net income                             $       65.2  $       22.9  $       57.5 
     Adjustments to reconcile net income to
          net cash provided by operating
          activities:
          Depreciation and depletion               116.0         123.5         120.9 
          Restructuring of operations               19.7             -             - 
          Minority interests                        16.2           9.9          22.2 
          Amortization of deferred
               financing costs and
               discounts on long-term
               debt                                 24.8          21.5          19.5 
          Amortization of excess investment
               over equity in net assets of
                unconsolidated affiliates           11.4          11.6          11.4
          Equity in (earnings) loss of
               unconsolidated affiliates,
               net of dividends
               received                             23.3           3.0         (19.1)
          Net gain on sales of real estate,
               mortgage loans and other
               assets                               (7.9)        (23.7)         (9.7)
          Net gains on marketable
               securities                          (18.1)         (7.8)         (8.6)
          Net sales (purchases) of
               marketable securities               (16.2)          3.4          (4.0)
          Increase (decrease) in cash
               resulting from changes in:
               Prepaid expenses and other
                    assets                          (9.8)        (33.3)         84.5 
               Accounts payable                    (14.8)          4.8          34.7 
               Receivables                         (86.1)         60.4        (103.6)
               Inventories                            .4         (30.6)        (65.3)
               Accrued and deferred income
                    taxes                           (4.4)        (46.0)        (13.1)
               Payable to affiliates and
                    other liabilities              (67.5)        (74.0)         (1.2)
               Accrued interest                      8.4           6.2          (1.0)
          Other                                      8.0           4.2          12.8 
                                            ------------  ------------  ------------
               Net cash provided by
                    operating activities            68.6          56.0         137.9 
                                            ------------  ------------  ------------
Cash flows from investing activities:
     Net proceeds from disposition of
          property and investments                  40.6          51.8          39.3 
     Capital expenditures                         (164.5)       (173.1)        (97.7)
     Investment in subsidiaries and joint
          ventures                                  (7.2)         (2.4)        (15.9)
     Other                                          (7.8)         (1.4)         (1.1)
                                            ------------  ------------  ------------
               Net cash used for investing
                    activities                    (138.9)       (125.1)        (75.4)
                                            ------------  ------------  ------------
Cash flows from financing activities:
     Proceeds from issuance of long-term
          debt                                      30.1         371.8           5.7 
     Net borrowings (payments) under
          revolving and short-term credit
          facilities                                 2.5         (13.8)          4.4 
     Restricted cash withdrawals (deposits)         (3.7)           .4           1.0 
     Redemptions, repurchase of and
          principal payments on long-term
          debt                                     (78.4)        (32.8)        (40.9)
     Dividends paid to Kaiser's minority
          preferred stockholders                    (4.2)        (10.5)        (20.5)
     Redemption of preference stock                 (2.1)         (5.2)         (8.8)
     Treasury stock repurchases                    (52.8)         (1.8)            - 
     Incurrence of financing costs                  (1.8)        (12.1)         (1.8)
     Other                                           8.7           5.5          18.0 
                                            ------------  ------------  ------------
               Net cash provided by (used
                    for) financing
                    activities                    (101.7)        301.5         (42.9)
                                            ------------  ------------  ------------
Net increase (decrease) in cash and cash
     equivalents                                  (172.0)        232.4          19.6 
Cash and cash equivalents at beginning of
     year                                          336.6         104.2          84.6 
                                            ------------  ------------  ------------
Cash and cash equivalents at end of year    $      164.6  $      336.6  $      104.2 
                                            ============  ============  ============


<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>


                        MAXXAM INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)


1.        BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
          POLICIES

     BASIS OF PRESENTATION

          The Company
          The consolidated financial statements include the accounts of
MAXXAM Inc. and its majority and wholly owned subsidiaries.  All references
to the "Company" include MAXXAM Inc. and its majority owned and wholly
owned subsidiaries, unless otherwise indicated or the context indicates
otherwise.  Intercompany balances and transactions have been eliminated. 
Investments in affiliates (20% to 50%-owned) are accounted for utilizing
the equity method of accounting.  Certain reclassifications have been made
to prior years' financial statements to be consistent with the current
year's presentation.

          The Company is a holding company and, as such, conducts
substantially all of its operations through its subsidiaries.  The Company
operates in three principal industries: aluminum, through its majority
owned subsidiary, Kaiser Aluminum Corporation ("Kaiser", 63% owned as of
December 31, 1997), an integrated aluminum producer; forest products,
through MAXXAM Group Inc. ("MGI") and MGI's wholly owned subsidiaries,
principally The Pacific Lumber Company ("Pacific Lumber") and Britt Lumber
Co., Inc. ("Britt"); real estate investment and development, managed
through its wholly owned subsidiary, MAXXAM Property Company; and other
commercial operations through various other wholly owned subsidiaries. 
MAXXAM Group Holdings Inc. ("MGHI") owns 100% of MGI and is a wholly owned
subsidiary of the Company.

          The cumulative losses of Kaiser in 1993, principally due to the
implementation of the new accounting standard for postretirement benefits
other than pensions, eliminated Kaiser's equity with respect to its common
stock; accordingly, from 1993 until August 1997, the Company has recorded
100% of Kaiser's earnings and losses, without regard to the minority
interests represented by Kaiser's other common stockholders (as described
in Note 10).  With the conversion of Kaiser's 8.255% Preferred Redeemable
Increased Dividend Equity Securities (the "PRIDES") into Kaiser common
stock in August 1997, the cumulative losses recorded by the Company with
respect to Kaiser's minority common stockholders were recovered, and the
Company began reflecting a minority interest in Kaiser's results in its
financial statements.

          Description of the Company's Operations
          Kaiser operates in the aluminum industry through its wholly owned
principal operating subsidiary, Kaiser Aluminum & Chemical Corporation
("KACC").  KACC operates in several principal aspects of the aluminum
industry - the mining of bauxite (the major aluminum-bearing ore), the
refining of bauxite into alumina (the intermediate material), the
production of aluminum and the manufacture of fabricated and semi-
fabricated aluminum products.  KACC's production levels of alumina and
primary aluminum exceed its internal processing needs, which allows it to
be a major seller of alumina and primary aluminum in domestic and
international markets.  A substantial portion of the Company's consolidated
assets, liabilities, revenues, results of operations and cash flows are
attributable to Kaiser (see Note 14).

          Pacific Lumber operates in several principal aspects of the
lumber industry - the growing and harvesting of redwood and Douglas-fir
timber, the milling of logs into lumber and the manufacture of lumber into
a variety of finished products.  Britt manufactures redwood and cedar
fencing and decking products from small diameter logs, a substantial
portion of which are obtained from Pacific Lumber.  Housing, construction
and remodeling markets are the principal markets for the Company's lumber
products.  Export sales constituted less than 5% of forest products sales
in 1997.  A significant portion of forest products sales are made to third
parties located west of the Mississippi River.

          The Company, principally through its wholly owned subsidiaries,
is also engaged in the business of residential and commercial real estate
investment and development, primarily in California, Arizona, Texas and
Puerto Rico.  With respect to periods after October 6, 1995, other
commercial operations include the results of Sam Houston Race Park, Ltd.
("SHRP, Ltd."), a Texas limited partnership which owns and operates a Class
1 horse racing facility in the greater Houston metropolitan area.

          Use of Estimates and Assumptions
          The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities,
(ii) disclosure of contingent assets and liabilities known to exist as of
the date the financial statements are published and (iii) the reported
amount of revenues and expenses recognized during each period presented. 
The Company reviews all significant estimates affecting its consolidated
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their publication.  Adjustments made with
respect to the use of estimates often relate to improved information not
previously available.  Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the subsequent
resolution of any one of the contingent matters described in Note 12 could
differ materially from current estimates.  The results of an adverse
resolution of such uncertainties could have a material effect on the
Company's consolidated financial position, results of operations or
liquidity.

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Cash Equivalents
          Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less.

          Marketable Securities
          Marketable securities are carried at fair value.  The cost of the
securities sold is determined using the first-in, first-out method. 
Included in investment, interest and other income for each of the three
years in the period ended December 31, 1997 were:  1997 - net unrealized
holding gains of $5.0 and net realized gains of $11.9; 1996 - net
unrealized holding losses of $.8 and net realized gains of $8.1; and 1995 -
net unrealized holding gains of $1.9 and net realized gains of $6.8.

          Inventories
          Inventories are stated at the lower of cost or market.  Cost for
the aluminum and forest products operations inventories is primarily
determined using the last-in, first-out ("LIFO") method.  Other inventories
of the aluminum operations, principally operating supplies and repair and
maintenance parts, are stated at the lower of average cost or market. 
Inventory costs consist of material, labor and manufacturing overhead,
including depreciation and depletion.

          Inventories consist of the following (in millions):


<TABLE>
<CAPTION>

                                                           December 31,
                                                   ---------------------------
                                                        1997          1996
                                                   ------------- -------------
<S>                                                <C>           <C>
Aluminum Operations:
     Finished fabricated products                  $       103.9 $       113.5
     Primary aluminum and work in process                  226.6         200.3
     Bauxite and alumina                                   108.4         110.2
     Operating supplies and repair and maintenance
          parts                                            129.4         138.2
                                                   ------------- -------------
                                                           568.3         562.2
                                                   ------------- -------------
Forest Products Operations:
     Lumber                                                 49.7          55.8
     Logs                                                   11.6          16.8
                                                   ------------- -------------
                                                            61.3          72.6
                                                   ------------- -------------
                                                   $       629.6 $       634.8
                                                   ============= =============


</TABLE>


          Property, Plant and Equipment
          Property, plant and equipment is stated at cost, net of
accumulated depreciation.  Depreciation is computed principally utilizing
the straight-line method at rates based upon the estimated useful lives of
the various classes of assets.

          Timber and Timberlands
          Timber and timberlands are stated at cost, net of accumulated
depletion.  Depletion is computed utilizing the unit-of-production method
based upon estimates of timber values and quantities.

          Deferred Financing Costs
          Costs incurred to obtain financing are deferred and amortized
over the estimated term of the related borrowing.

          Restricted Cash and Concentrations of Credit Risk
          At December 31, 1997 and 1996, cash and cash equivalents includes
$17.8 and $17.6, respectively, which is reserved for debt service payments
on the Company's 7.95% Timber Collateralized Notes due 2015 (the "Timber
Notes").  At December 31, 1997 and 1996, long-term receivables and other
assets includes $33.7 and $30.0, respectively, primarily of restricted cash
deposits held for the benefit of the Timber Note holders (the "Liquidity
Account") as described in Note 7.  Each of these deposits is held by a
different financial institution.  In the event of nonperformance by such
financial institutions, the Company's exposure to credit loss is
represented by the amounts deposited plus any unpaid accrued interest
thereon.  The Company mitigates its concentrations of credit risk with
respect to these restricted cash deposits by maintaining them at high
credit quality financial institutions and monitoring the credit ratings of
these institutions.

          Investment, Interest and Other Income
          Investment, interest and other income for the years ended
December 31, 1997, 1996 and 1995 includes $8.8, $3.1, and $17.8,
respectively, of pre-tax charges related principally to establishing
additional litigation reserves for asbestos claims and environmental
reserves for potential soil and ground water remediation matters, each
pertaining to operations which were discontinued prior to the acquisition
of Kaiser by the Company in 1988.  Also included in investment, interest
and other income are net gains from sales of real estate of $10.4, $25.4
and $11.1 for the years ended December 31, 1997, 1996 and 1995,
respectively.

          Foreign Currency Translation
          The Company uses the United States dollar as the functional
currency for its foreign operations.

          Derivative Financial Instruments
          Hedging transactions using derivative financial instruments are
primarily designed to mitigate KACC's exposure to changes in prices for
certain of the products which KACC sells and consumes and, to a lesser
extent, to mitigate KACC's exposure to changes in foreign currency exchange
rates. KACC does not utilize derivative financial instruments for trading
or other speculative purposes. KACC's derivative activities are initiated
within guidelines established by Kaiser's management and approved by KACC's
and Kaiser's boards of directors. Hedging transactions are executed
centrally on behalf of all of KACC's business segments to minimize
transactions costs, monitor consolidated net exposures and to allow for
increased responsiveness to changes in market factors.

          Most of KACC's hedging activities involve the use of option
contracts (which establish a maximum and/or minimum amount to be paid or
received) and forward sales contracts (which effectively fix or lock-in the
amount KACC will pay or receive).  Option contracts typically require the
payment of an up-front premium in return for the right to receive the
amount (if any) by which the price at the settlement date exceeds the
strike price.  Any interim fluctuations in prices prior to the settlement
date are deferred until the settlement date of the underlying hedged
transaction, at which point they are reflected in net sales or cost of
sales and operations (as applicable) together with the related premium
cost.  Forward sales contracts do not require an up-front payment and are
settled by the receipt or payment of the amount by which the price at the
settlement date varies from the contract price.  No accounting recognition
is accorded to interim fluctuations in prices of forward sales contracts.

          KACC has established margin accounts and credit limits with
certain counterparties related to open forward sales and option contracts. 
When unrealized gains or losses are in excess of such credit limits, KACC
is entitled to receive advances from the counterparties on open positions
or is required to make margin deposits to counterparties as the case may
be.  At December 31, 1997, KACC had neither received nor made any margin
deposits.  At December 31, 1996, KACC had received $13.0 of margin advances
from counterparties.  Kaiser considers credit risk related to possible
failure of the counterparties to perform their obligations pursuant to the
derivative contracts to be minimal.  Deferred gains or losses are included
in prepaid expenses and other current assets and other accrued liabilities. 
See Note 13.

          Fair Value of Financial Instruments
          The carrying amounts of cash equivalents and restricted cash
approximate fair value.  Marketable securities are carried at fair value
which is determined based on quoted market prices.  As of December 31, 1997
and 1996, the estimated fair value of long-term debt was $2,010.6 and
$1,972.2, respectively.  The estimated fair value of long-term debt is
determined based on the quoted market prices for the publicly traded issues
and on the current rates offered for borrowings similar to the other debt. 
Some of the Company's publicly traded debt issues are thinly traded
financial instruments; accordingly, their market prices at any balance
sheet date may not be representative of the prices which would be derived
from a more active market.

          Stock-Based Compensation
          The Company applies the "intrinsic value" method for accounting
for stock or stock-based compensation awards described by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations (see Note 11).  Had the Company
applied the alternative "fair value" method as described in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's pro forma net income and diluted earnings per
share would have been $64.0 and $7.00 per share, respectively, for the year
ended December 31, 1997 and $22.3 and $2.36 per share, respectively, for
the year ended December 31, 1996.

          Earnings Per Share Information
          In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128").  Under SFAS No. 128, primary earnings per share ("Primary EPS") has
been replaced by basic earnings per share ("Basic EPS"), and fully diluted
earnings per share ("Fully Diluted EPS") has been replaced by diluted
earnings per share ("Diluted EPS").  Basic EPS differs from Primary EPS in
that it only includes the weighted average impact of outstanding shares of
the Company's common stock (i.e., it excludes the dilutive effect of common
stock equivalents such as the Class A Preferred Stock as defined below,
options, etc.).  Diluted EPS is substantially similar to Fully Diluted EPS. 
The provisions of SFAS No. 128 resulted in the retroactive restatement of
previously reported earnings per share figures.

          Basic earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period
including the weighted average impact of the shares of common stock issued
and treasury stock acquired during the year from the date of issuance or
repurchase.  The weighted average common shares outstanding was 8,357,062
shares, 8,700,269 shares and 8,707,649 shares for the years ended December
31, 1997, 1996 and 1995, respectively.

          Diluted earnings per share calculations also include the dilutive
effect of the Class A Preferred Stock which are convertible into Common
Stock as well as common and preferred stock options.  The weighted average
number of common and common equivalent shares was 9,143,920 shares,
9,465,051 shares and 9,459,293 shares for the years ended December 31,
1997, 1996 and 1995, respectively.

2.        ACQUISITION

          During June 1997, Kaiser Bellwood Corporation, a newly formed,
wholly owned subsidiary of KACC, completed the acquisition of the Reynolds
Metals Company's Richmond, Virginia, extrusion plant and its existing
inventories for a total purchase price of $41.6, consisting of cash
payments of $38.4 and the assumption of approximately $3.2 of employee
related and other liabilities.  Upon completion of the transaction, Kaiser
Bellwood Corporation became a subsidiary guarantor under the indentures in
respect of the KACC 9-7/8% Senior Notes, KACC 10-7/8% Senior Notes, and
KACC 12-3/4% Senior Subordinated Notes (all as defined below).

3.        RESTRUCTURING OF OPERATIONS

          Kaiser has previously disclosed that it set a goal of achieving
significant cost reductions and other profit improvements, measured against
1996 results, with the full effect planned to be realized in 1998 and
beyond.  The initiative is based on Kaiser's conclusion that the level of
performance of its existing facilities and businesses would not achieve the
level of profits Kaiser considers satisfactory based upon historic long-
term average prices for primary aluminum and alumina.  During the second
quarter of 1997, Kaiser recorded a $19.7 restructuring charge to reflect
actions taken and plans initiated to achieve the reduced production costs,
decreased corporate selling, general and administrative expenses, and
enhanced product mix intended to achieve this goal.  The significant
components of the restructuring charge are enumerated below.

          Erie Plant Disposition
          During the second quarter of 1997, Kaiser formed a joint venture
with a third party related to the assets and liabilities associated with
the wheel manufacturing operations at its Erie, Pennsylvania, fabrication
plant.  Kaiser's management subsequently decided to close the remainder of
the Erie plant in order to consolidate its aluminum forging operations at
two other facilities for increased efficiency.  As a result of the joint
venture formation and plant closure, Kaiser recognized a net pre-tax loss
of approximately $1.4.

          Other Asset Dispositions
          As a part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management made decisions regarding product
rationalization and geographical optimization, which led management to
decide to dispose of certain assets which had nominal operating
contribution.  These strategic decisions resulted in Kaiser recognizing a
pre-tax charge for approximately $15.6 associated with such asset
dispositions.

          Employee and Other Costs
          As another part of Kaiser's profit enhancement and cost reduction
initiative, Kaiser's management concluded that certain corporate and other
staff functions could be consolidated or eliminated resulting in a second
quarter pre-tax charge of approximately $2.7 for benefit and other costs.

4.        INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

          Summary combined financial information is provided below for
unconsolidated aluminum investments, most of which supply and process raw
materials.  The investees are Queensland Alumina Limited ("QAL") (28.3%
owned), Kaiser Jamaica Bauxite Company (49% owned) and Anglesey Aluminium
Limited ("Anglesey") (49% owned).  KACC provides some of its affiliates
with services such as financing, management and engineering.  Purchases
from these affiliates for the acquisition and processing of bauxite,
alumina and primary aluminum aggregated $245.2, $281.6 and $284.4 for the
years ended December 31, 1997, 1996 and 1995, respectively.  KACC's equity
in earnings (loss) before income taxes of such operations is treated as a
reduction (increase) in cost of sales.  At December 31, 1997 and 1996,
KACC's net receivables from these affiliates were not material.

          Kaiser, principally through KACC, has a variety of financial
commitments, including purchase agreements, tolling arrangements, forward
foreign exchange and forward sales contracts (see Note 13), letters of
credit and guarantees.  Such purchase agreements and tolling arrangements
include long-term agreements for the purchase and tolling of bauxite into
alumina in Australia by QAL.  These obligations expire in 2008.  Under the
agreements, KACC is unconditionally obligated to pay its proportional share
of debt, operating costs and certain other costs of QAL.  The aggregate
minimum amount of required future principal payments at December 31, 1997
is $97.6, of which approximately $12.0 is due in each of 2000 and 2001 with
the balance being due thereafter.  KACC's share of payments, including
operating costs and certain other expenses under the agreements, has ranged
between $100.0 and $120.0 per year over the past three years.  KACC also
has agreements to supply alumina to and to purchase aluminum from Anglesey.

          The summary combined financial information for the year ended
December 31, 1997 also contains the balances and results of AKW L.P. (50%
owned), an aluminum wheels joint venture formed with a third party in April
1997 (in millions).

<TABLE>
<CAPTION>


                                                            December 31,
                                                    ---------------------------
                                                         1997          1996
                                                    ------------- -------------
<S>                                                 <C>           <C>
Current assets                                      $       393.0 $       450.3
Property, plant and equipment, net and other assets         395.0         364.7
                                                    ------------- -------------
     Total assets                                   $       788.0 $       815.0
                                                    ============= =============

Current liabilities                                 $       117.1 $       116.9
Long-term debt and other liabilities                        400.8         386.7
Stockholders' equity                                        270.1         311.4
                                                    ------------- -------------
     Total liabilities and stockholders' equity     $       788.0 $       815.0
                                                    ============= =============


</TABLE>



<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Net sales                                    $      644.1  $      660.5  $      685.9 
Costs and expenses                                 (637.8)       (631.5)       (618.7)
Provision for income taxes                           (8.2)         (8.7)        (18.7)
                                             ------------  ------------  ------------
Net income (loss)                            $       (1.9) $       20.3  $       48.5 
                                             ============  ============  ============ 

Kaiser's equity in earnings                  $        2.9  $        8.8  $       19.2 
                                             ============  ============  ============ 

Dividends received                           $       10.7  $       11.8  $          - 
                                             ============  ============  ============ 


</TABLE>

          Kaiser's equity in earnings differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity
method accounting adjustments.  At December 31, 1997, Kaiser's investment
in its unconsolidated affiliates exceeded its equity in their net assets by
approximately $28.8 which amount will be fully amortized over the next three
years.

          Other Investees
          In 1995, pursuant to a joint venture agreement with SunCor
Development Company ("SunCor") for the purpose of developing and managing a
real estate project, the Company, through a wholly owned real estate
subsidiary, contributed 950 acres of undeveloped land valued at $10.0 in
exchange for a 50% initial interest in the joint venture.  SunCor, the
managing partner, contributed $10.0 in cash in exchange for its 50% initial
interest.  At December 31, 1997, the joint venture had assets of $32.9,
liabilities of $10.5 and equity of $22.4.  At December 31, 1996, the joint
venture had assets of $33.5, liabilities of $11.1 and equity of $22.4.  For
the years ended December 31, 1997, 1996 and 1995, the joint venture
incurred income of $3.8, $2.3 and $0.2, respectively.

          As a result of certain transactions in 1995, the Company
increased its ownership interest in SHRP, Ltd. from 45.0% to 78.8% and
acquired certain of the 11% Senior Secured Extendible Notes due September
1, 2001 of SHRP Equity, Inc. (the "SHRP Notes").  Supplemental cash flows
disclosure related to the acquisition of SHRP, Ltd. in October 1995 is as
follows: assets acquired of $29.3, assumed liabilities of $20.7, and
additional minority interest of $2.8.  In 1997, the Company purchased an
additional amount of the SHRP Notes and the corresponding equity interest
in SHRP Equity Inc. for $5.9 , thereby increasing the Company's ownership
in SHRP, Ltd. to 88.5%.

          The assets and liabilities of SHRP, Ltd. are included in the
accompanying Consolidated Balance Sheet as of December 31, 1997 and 1996,
and the results of SHRP, Ltd.'s operations and cash flows for the period
from October 6, 1995 to December 31, 1995 and for the years ended December
31, 1996 and 1997 are included in the accompanying Consolidated Statements
of Operations and Cash Flows.

5.        PROPERTY, PLANT AND EQUIPMENT

          The major classes of property, plant and equipment are as follows
(in millions):


<TABLE>
<CAPTION>

                                           Estimated            December 31,
                                             Useful     --------------------------
                                             Lives           1997          1996
                                         -------------  ------------  ------------
<S>                                      <C>            <C>           <C>
Land and improvements                     5 - 30 years  $      206.1  $      194.6 
Buildings                                 5 - 45 years         324.5         304.6 
Machinery and equipment                   3 - 22 years       1,568.8       1,479.1 
Construction in progress                                        67.1          89.1 
                                                        ------------  ------------
                                                             2,166.5       2,067.4 
Less:  accumulated depreciation                               (845.6)       (769.5)
                                                        ------------  ------------
                                                        $    1,320.9  $    1,297.9 
                                                        ============  ============


</TABLE>

          Depreciation expense for the years ended December 31, 1997, 1996
and 1995 was $99.9, $105.9 and $105.4, respectively.

6.        SHORT-TERM BORROWINGS
          During 1997, the Company had average short-term borrowings
outstanding of $9.0 under the notes described below.  The weighted average
interest rate during 1997 was 9.8%.

          Demand Note
          On November 26, 1997, the Company entered into a credit facility
with Salomon Smith Barney providing for up to $25.0 in borrowings payable
on demand.  Borrowings are secured by 400,000 shares of Kaiser common stock
for each $1.0 of borrowings.  As of December 31, 1997, $2.5 of borrowings
were outstanding under this facility.

          Notes to NL Industries, Inc. ("NL") and the Combined Master
Retirement Trust ("CMRT")

          On October 17, 1997, the Company agreed to repurchase 1,277,250
shares of its common stock, consisting of 250,000 shares owned by NL and
1,027,250 shares owned by CMRT, an affiliate of NL, for an amount which
approximated market value.  The aggregate purchase price for these shares
of $70.2 was paid $35.1 in cash and $35.1 in one-year notes issued to NL
and CMRT bearing interest at 10% per annum.  These notes are secured by the
common stock which was repurchased.

7.        LONG-TERM DEBT

          Long-term debt consists of the following (in millions):

<TABLE>
<CAPTION>

                                                            December 31,
                                                    --------------------------
                                                         1997          1996
                                                    ------------  -------------
<S>                                                 <C>           <C>
14% MAXXAM Senior Subordinated Reset Notes due May
     20, 2000                                       $          -  $       25.0 
12-1/2% MAXXAM Subordinated Debentures due December
     15, 1999, net of discount                                 -          17.6 
12% MGHI Senior Secured Notes due August 1, 2003           130.0         130.0 
11-1/4% MGI Senior Secured Notes due August 1, 2003        100.0         100.0 
12-1/4% MGI Senior Secured Discount Notes due
     August 1, 2003, net of discount                       117.3         104.2 
10-1/2% Pacific Lumber Senior Notes due March 1,
     2003                                                  235.0         235.0 
Pacific Lumber Credit Agreement                              9.4             - 
7.95% Scotia Pacific Timber Collateralized Notes
     due July 20, 2015                                     320.0         336.1 
1994 KACC Credit Agreement                                     -             - 
10-7/8% KACC Senior Notes due October 15, 2006,
     including premium                                     225.8         225.9 
9-7/8% KACC Senior Notes due February 15, 2002, net
     of discount                                           224.2         224.0 
12-3/4% KACC Senior Subordinated Notes due February
     1, 2003                                               400.0         400.0 
Alpart CARIFA Loans                                         60.0          60.0 
Other aluminum operations debt                              61.6          52.0 
Other notes and contracts, primarily secured by
     receivables, buildings, real estate
     and equipment                                          36.1          41.7 
                                                    ------------  ------------ 
                                                         1,919.4       1,951.5 
          Less: current maturities                         (31.4)        (69.6)
                                                    ------------  ------------ 
                                                    $    1,888.0  $    1,881.9 
                                                    ============  ============ 


</TABLE>

          14% MAXXAM Senior Subordinated Reset Notes due 2000 (the "Reset
          Notes") and 12-1/2% MAXXAM Subordinated Debentures due 1999
          (the "12-1/2% Debentures")
          The Company redeemed the Reset Notes and 12-1/2% Debentures at
par on January 7, 1997 and January 22, 1997, respectively, using proceeds
from the Intercompany Note (defined below).

          MAXXAM Loan Agreement (the "Custodial Trust Agreement")
          On October 21, 1997, the Company renewed a loan and pledge
agreement with the Custodial Trust Company providing for up to $25.0 in
borrowings.  Any amounts drawn would likely be secured by Kaiser common
stock owned by the Company and having an initial market value equal to
three times the amount borrowed.  Borrowings under the Custodial Trust
Agreement would bear interest at LIBOR plus 2% per annum.  The Custodial
Trust Agreement provides for a revolving credit arrangement during the
first year of the agreement.  Any borrowings outstanding on October 21,
1998 convert into a term loan maturing on October 21, 1999.  No borrowings
were outstanding as of December 31, 1997.

          12% MGHI Senior Secured Notes due 2003 (the "MGHI Notes")
          On December 23, 1996, MGHI issued $130.0 principal amount of 12%
Senior Secured Notes due August 1, 2003.  The MGHI Notes are guaranteed on
a senior, unsecured basis by the Company.  Interest is payable semi-
annually.  MGHI has agreed to pledge up to 16,055,000 of the 27,938,250
shares of Kaiser common stock it owns if and when such shares are released
from the pledge securing the MGI Notes (as defined below).

          The net proceeds from the offering after estimated expenses were
approximately $125.0, all of which was loaned to the Company pursuant to an
intercompany note (the "Intercompany Note") which is pledged to secure the
MGHI Notes.  The Intercompany Note bears interest at the rate of 11% per
annum (payable semi-annually on the interest payment dates applicable to
the MGHI Notes) and matures on August 1, 2003.  The Company will be
entitled to defer the payment of interest on the Intercompany Note on any
interest payment date to the extent that MGHI has sufficient available
funds to satisfy its obligations on the MGHI Notes on such date.  Any such
deferred interest will be added to the principal amount of the Intercompany
Note and will be payable at maturity.  No interest was deferred on the
Intercompany Note as of December 31, 1997.

          11-1/4% MGI Senior Secured Notes due 2003 (the "MGI Senior
          Notes") and 12-1/4% MGI Senior Secured Discount Notes due 2003
          (the "MGI Discount Notes")
          The MGI Senior Notes and the MGI Discount Notes (together, the
"MGI Notes") are secured by MGI's pledge of 100% of the common stock of
Pacific Lumber, Britt and MAXXAM Properties Inc. (a wholly owned subsidiary
of MGI) and by MGHI's pledge of 27,983,250 shares of Kaiser's common stock. 
The indenture governing the MGI Notes, among other things, restricts the
ability of MGI to incur additional indebtedness, to engage in transactions
with affiliates, to pay dividends and to make investments.  Interest on the
MGI Senior Notes is payable semi-annually.  The MGI Discount Notes are net
of discount of $8.4 and $21.5 at December 31, 1997 and 1996, respectively. 
The MGI Discount Notes will not pay any interest until February 1, 1999, at
which time semi-annual interest payments will become due on each February 1
and August 1 thereafter.

          10-1/2% Pacific Lumber Senior Notes due 2003 (the "Pacific Lumber
          Senior Notes")
          Interest on the Pacific Lumber Senior Notes is payable semi-
annually.  The Pacific Lumber Senior Notes are redeemable at the option of
Pacific Lumber, in whole or in part, on or after March 1, 1998 at a price
of 103% of the principal amount plus accrued interest.  The redemption
price is reduced annually until March 1, 2000, after which time the Pacific
Lumber Senior Notes are redeemable at par.  The Pacific Lumber Senior Notes
are unsecured and are senior indebtedness of Pacific Lumber.  The indenture
governing the Pacific Lumber Senior Notes contains various covenants which,
among other things, limit Pacific Lumber's ability to incur additional
indebtedness and liens, to engage in transactions with affiliates, to pay
dividends and to make investments.

          Pacific Lumber Revolving Credit Agreement (as amended and
          restated, the "Pacific Lumber Credit Agreement")
          On October 9, 1997, the Pacific Lumber Credit Agreement was
amended to extend the date on which it expires to May 31, 2000.  Borrowings
under the Pacific Lumber Credit Agreement are secured by Pacific Lumber's
trade receivables and inventories, with interest currently computed at the
bank's reference rate plus 1-1/4% or the bank's offshore rate plus 2-1/4%. 
The Pacific Lumber Credit Agreement provides for borrowings of up to $60.0,
of which $20.0 may be used for standby letters of credit and $30.0 is
restricted to timberland acquisitions.  Borrowings made pursuant to the
portion of the credit facility restricted to timberland acquisitions would
also be secured by the purchased timberlands.  As of December 31, 1997,
$35.5 of borrowings was available under the Pacific Lumber Credit
Agreement, of which $4.9 was available for letters of credit and $20.6 was
restricted to timberland acquisitions.  As of December 31, 1997, $9.4 of
borrowings were outstanding, and letters of credit outstanding amounted to
$15.1.  The Pacific Lumber Credit Agreement contains covenants
substantially similar to those contained in the indenture governing the
Pacific Lumber Senior Notes.

          Scotia Pacific Timber Notes
          The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits Scotia Pacific from incurring any additional
indebtedness for borrowed money and limits the business activities of
Scotia Pacific to the ownership and operation of its timber and
timberlands.  The Timber Notes are senior secured obligations of Scotia
Pacific and are not obligations of, or guaranteed by, Pacific Lumber or any
other person.  The Timber Notes are secured by a lien on (i) Scotia
Pacific's timber and timberlands (representing $154.3 of the Company's
consolidated balance at December 31, 1997), (ii) substantially all of
Scotia Pacific's property and equipment, and (iii) other property including
cash equivalents reserved for debt service payments and the funds deposited
in the Liquidity Account.

          The Timber Notes are structured to link, to the extent of
available cash, the deemed depletion of Scotia Pacific's timber (through
the harvest and sale of logs) to required amortization of the Timber Notes. 
The required amount of amortization due on any Timber Note payment date is
determined by various mathematical formulas set forth in the Timber Note
Indenture.  The minimum amount of principal which Scotia Pacific must pay
(on a cumulative basis) through any Timber Note payment date in order to
avoid an Event of Default (as defined in the Timber Note Indenture) is
referred to as rated amortization ("Rated Amortization").  If all payments
of principal are made in accordance with Rated Amortization, the payment
date on which Scotia Pacific will pay the final installment of principal is
July 20, 2015.  The amount of principal which Scotia Pacific must pay
through each Timber Note payment date in order to avoid payment of
prepayment or deficiency premiums is referred to as scheduled amortization
("Scheduled Amortization").  If all payments of principal are made in
accordance with Scheduled Amortization, the payment date on which Scotia
Pacific will pay the final installment of principal is July 20, 2009.

          Principal and interest on the Timber Notes are payable semi-
annually on January 20 and July 20.  The Timber Notes are redeemable at the
option of Scotia Pacific, in whole but not in part, at any time.  The
redemption price of the Timber Notes is equal to the sum of the principal
amount, accrued interest and a prepayment premium calculated based upon the
yield of like-term Treasury securities plus 50 basis points.

          1994 KACC Credit Agreement (as amended, the "KACC Credit
          Agreement")
          KACC is able to borrow under this facility by means of revolving
credit advances and letters of credit (up to $125.0) in an aggregate amount
equal to the lesser of $325.0 or a borrowing base relating to eligible
accounts receivable plus eligible inventory.  In January 1998, the term of
this facility was extended from February 1999 to August 2001.  As of
December 31, 1997, no borrowings were outstanding and $273.4 (of which
$73.4 could have been used for letters of credit) was available under the
KACC Credit Agreement.  The KACC Credit Agreement is unconditionally
guaranteed by Kaiser and by certain significant subsidiaries of KACC. 
Outstanding balances bear interest at a premium (which varies based on the
results of a financial test) over either a base rate or LIBOR, at Kaiser's
option.

          The KACC Credit Agreement requires KACC to comply with certain
financial covenants and places restrictions on Kaiser's and KACC's ability
to, among other things, incur debt and liens, make investments, pay
dividends, undertake transactions with affiliates, make capital
expenditures and enter into unrelated lines of business.  The KACC Credit
Agreement is secured by, among other things, (i) mortgages on KACC's major
domestic plants (excluding KACC's Gramercy alumina plant and Nevada
micromill facility), (ii) subject to certain exceptions, liens on the
accounts receivable, inventory, equipment, domestic patents and trademarks
and substantially all other personal property of KACC and certain of its
subsidiaries, (iii) a pledge of all of the stock of KACC owned by Kaiser,
and (iv) pledges of all of the stock of a number of KACC's wholly owned
domestic subsidiaries, pledges of a portion of the stock of certain foreign
subsidiaries and pledges of a portion of the stock of certain partially
owned foreign affiliates.  Substantially all of the identifiable assets of
the bauxite and alumina and aluminum processing segments (see Note 14) are
attributable to KACC and collateralize the KACC Credit Agreement
indebtedness.

          10-7/8% KACC Senior Notes due 2006 (the "KACC 10-7/8% Senior
          Notes"), 9-7/8% KACC Senior Notes due 2002 (the "KACC 9-7/8%
          Senior Notes") and 12-3/4% KACC Senior Subordinated Notes due
          2003 (the "KACC Senior Subordinated Notes")
          During the fourth quarter of 1996, KACC sold a total of $225.0
principal amount of KACC 10-7/8% Senior Notes in two separate transactions. 
A net premium of $0.9 was realized from the issuance of the KACC 10-7/8%
Senior Notes.  The KACC 10-7/8% Senior Notes rank equal in right and
priority of payment with the indebtedness under the KACC Credit Agreement
and the KACC 9-7/8% Senior Notes (defined below).

          Concurrent with the offering by Kaiser of the PRIDES, KACC issued
$225.0 of the KACC 9-7/8% Senior Notes.  The net proceeds from the offering
of the KACC 9-7/8% Senior Notes were used to reduce outstanding borrowings
under the revolving credit facility of the 1989 KACC Credit Agreement
immediately prior to the effectiveness of the KACC Credit Agreement and for
working capital and general corporate purposes.  The KACC 9-7/8% Senior
Notes are net of discount of $.8 and $1.0 at December 31, 1997 and 1996,
respectively.

          The obligations of KACC with respect to the KACC 9-7/8% Senior
Notes, the KACC 10-7/8% Senior Notes and the KACC Senior Subordinated Notes
are guaranteed, jointly and severally, by certain subsidiaries of KACC. 
The indentures governing the KACC 9-7/8% Senior Notes, the KACC 10-7/8%
Senior Notes and the KACC Senior Subordinated Notes (together, the "KACC
Indentures") restrict, among other things, KACC's ability to incur debt,
undertake transactions with affiliates, and pay dividends.  Under the most
restrictive of the covenants in the KACC Indentures and the KACC Credit
Agreement, neither Kaiser nor KACC currently is permitted to pay dividends
on their common stock.  Further, the KACC Indentures provide that KACC must
offer to purchase such notes upon the occurrence of a Change of Control (as
defined therein), and the KACC Credit Agreement provides that the
occurrence of a Change in Control (as defined therein) shall constitute an
Event of Default thereunder.

     ALPART CARIFA LOANS

          In December 1991, Alumina Partners of Jamaica ("Alpart," a
majority owned subsidiary of KACC) entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA").  Alpart's
obligations under the loan agreement are secured by a $64.2 letter of
credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed
by Kaiser's minority partner in Alpart).  Alpart has also agreed to
indemnify bondholders of CARIFA for certain tax payments that could result
from events, as defined, that adversely affect the tax treatment of the
interest income on the bonds.

     MATURITIES

          Scheduled maturities and redemptions of long-term debt
outstanding at December 31, 1997 are as follows (in millions):


<TABLE>
<CAPTION>


                                                          Years Ending December 31,
                             -----------------------------------------------------------------------------------
                                  1998          1999          2000          2001          2002       Thereafter
                             ------------- ------------- ------------- ------------- ------------- -------------
<S>                          <C>           <C>           <C>           <C>           <C>           <C>
12% MGHI Senior Secured
     Notes                   $           - $           - $           - $           - $           - $       130.0
11-1/4% MGI Senior Secured
     Notes                               -             -             -             -             -         100.0
12-1/4% MGI Senior Secured
     Discount Notes                      -             -             -             -             -         125.7
10-1/2% Pacific Lumber
     Senior Notes                        -             -             -             -             -         235.0
7.95% Scotia Pacific Timber
     Collateralized
     Notes                            19.3          21.6          24.0          24.7          24.8         205.5
10-7/8% KACC Senior Notes                -             -             -             -             -         225.0
9-7/8% KACC Senior Notes                 -             -             -             -         225.0             -
12-3/4% KACC Senior
     Subordinated Notes                  -             -             -             -             -         400.0
Alpart CARIFA Loans                      -             -             -             -             -          60.0
Other aluminum operations
     debt                              8.8           0.4           0.3           0.3           0.3          51.5
Other                                 37.7           4.3           4.4          27.2           3.6          14.8
                             ------------- ------------- ------------- ------------- ------------- -------------
                                                                                                                
                             $        65.8 $        26.3 $        28.7 $        52.2 $       253.7 $     1,547.5
                             ============= ============= ============= ============= ============= =============


</TABLE>

     CAPITALIZED INTEREST

          Interest capitalized during the years ended December 31, 1997,
1996 and 1995 was $6.6, $5.0 and $2.8, respectively.

     RESTRICTED NET ASSETS OF SUBSIDIARIES

          Certain debt instruments restrict the ability of the Company's
subsidiaries to transfer assets, make loans and advances and pay dividends
to the Company.  As of December 31, 1997, all of the assets relating to the
Company's aluminum, forest products, real estate and other operations are
subject to such restrictions.  The Company could eliminate all of such
restrictions with respect to approximately $193.7 of the Company's real
estate assets with the extinguishment of $24.6 of debt.

8.        INCOME TAXES

          Income taxes are determined using an asset and liability approach
which requires the recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. 
Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates.

          Income (loss) before income taxes and minority interests by
geographic area is as follows (in millions):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Domestic                                     $      (93.0) $      (55.0) $      (49.4)
Foreign                                             167.5          42.9         143.9 
                                             ------------  ------------  ------------ 
                                             $       74.5  $      (12.1) $       94.5 
                                             ============  ============  ============ 


</TABLE>

          Income taxes are classified as either domestic or foreign based
on whether payment is made or due to the United States or a foreign
country.  Certain income classified as foreign is subject to domestic
income taxes.

          The credit (provision) for income taxes on income (loss) before
income taxes and minority interests consists of the following (in
millions):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Current:
     Federal                                 $       (1.5) $       (1.5) $       (4.3)
     State and local                                  (.4)          (.5)          (.4)
     Foreign                                        (28.7)        (21.8)        (40.2)
                                             ------------  ------------  ------------
                                                    (30.6)        (23.8)        (44.9)
                                             ------------  ------------  ------------
Deferred:
     Federal                                         48.4          42.6          35.4 
     State and local                                 (3.9)         18.5           (.4)
     Foreign                                         (7.0)          7.6          (4.9)
                                             ------------  ------------  ------------
                                                     37.5          68.7          30.1 
                                             ------------  ------------  ------------
                                             $        6.9  $       44.9  $      (14.8)
                                             ============  ============  ============


</TABLE>

          A reconciliation between the credit (provision) for income taxes
and the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes and minority interests is as follows
(in millions):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Income (loss) before income taxes and
     minority interests                      $       74.5  $      (12.1) $       94.5 
                                             ============  ============  ============

Amount of federal income tax based upon the
     statutory rate                          $      (26.1) $        4.2  $      (33.1)
Revision of prior years' tax estimates and
     other changes in valuation allowances           33.8          41.2          24.2 
Percentage depletion                                  4.2           3.9           4.2 
Foreign taxes, net of federal tax benefit            (3.1)         (5.5)         (6.9)
State and local taxes, net of federal tax
     benefit                                         (2.8)          1.1          (2.4)
Other                                                  .9             -           (.8)
                                             ------------  ------------  ------------
                                             $        6.9  $       44.9  $      (14.8)
                                             ============  ============  ============


</TABLE>

          The caption entitled "Revision of prior years' tax estimates and
other changes in valuation allowances," as shown in the preceding table,
includes amounts for the reversal of reserves which the Company no longer
believes are necessary, other revisions in prior years' tax estimates and
changes in valuation allowances with respect to deferred income tax assets. 
Generally, the reversal of reserves relates to the expiration of the
relevant statute of limitations with respect to certain income tax returns,
or the resolution of specific income tax matters with the relevant tax
authorities.  For the years ended December 31, 1997, 1996 and 1995, the
reversal of reserves which the Company believes are no longer necessary
resulted in a credit to the income tax provision of $32.1, $40.8 and $20.0,
respectively.

          The components of the Company's net deferred income tax assets
(liabilities) are as follows (in millions):


<TABLE>
<CAPTION>

                                                            December 31,
                                                    --------------------------
                                                         1997          1996
                                                    ------------  ------------
<S>                                                 <C>           <C>
Deferred income tax assets:
     Postretirement benefits other than pensions    $      293.1  $      294.7 
     Other liabilities                                     219.6         203.4 
     Loss and credit carryforwards                         148.3         179.0 
     Real estate                                            48.1          47.3 
     Timber and timberlands                                 34.2          37.8 
     Other                                                 127.7         113.0 
     Valuation allowances                                 (126.4)       (141.2)
                                                    ------------  ------------
          Total deferred income tax assets, net            744.6         734.0 
                                                    ------------  ------------
Deferred income tax liabilities:
     Property, plant and equipment                        (145.6)       (163.7)
     Other                                                 (95.1)       (101.4)
                                                    ------------  ------------
          Total deferred income tax liabilities           (240.7)       (265.1)
                                                    ------------  ------------
Net deferred income tax assets                      $      503.9  $      468.9 
                                                    ============  ============


</TABLE>

          As of December 31, 1997, approximately $351.7 of the net deferred
income tax assets listed above are attributable to Kaiser.  A principal
component of this amount is the $258.0 tax benefit, net of certain
valuation allowances, associated with the accrual for postretirement
benefits other than pensions.  The future tax deductions with respect to
the turnaround of this accrual will occur over a thirty to forty-year
period.  If such deductions create or increase a net operating loss in any
year subsequent to 1997, Kaiser has the ability to carry forward such loss
for 20 taxable years.  For reasons discussed below, the Company believes a
long-term view of profitability is appropriate and has concluded that this
net deferred income tax asset will more likely than not be realized. 
Included in the remaining $93.7 of Kaiser's net deferred income tax assets
is approximately $59.8 attributable to the tax benefit of loss and credit
carryforwards, net of valuation allowances.  A substantial portion of the
valuation allowances for Kaiser relate to loss and credit carryforwards. 
The Company evaluated all appropriate factors to determine the proper
valuation allowances for these carryforwards, including any limitations
concerning their use, the year the carryforwards expire and the levels of
taxable income necessary for utilization.  For example, full valuation
allowances were provided for certain credit carryforwards that expire in
the near term.  With regard to future levels of income, the Company
believes that Kaiser, based on the cyclical nature of its business, its
history of operating earnings and its expectations for future years, will
more likely than not generate sufficient taxable income to realize the
benefit attributable to the loss and credit carryforwards for which
valuation allowances were not provided.  The net deferred income tax assets
listed above which are not attributable to Kaiser are approximately $152.2
as of December 31, 1997.  This amount includes approximately $73.5 which
relates to the excess of the tax basis over financial statement basis with
respect to timber and timberlands and real estate.  The Company has
concluded that it is more likely than not that these net deferred income
tax assets will be realized based in part upon the estimated values of the
underlying assets which are in excess of their tax basis.

          As of December 31, 1997 and 1996, $58.8 and $76.6, respectively,
of the net deferred income tax assets listed above are included in prepaid
expenses and other current assets. Certain other portions of the deferred
income tax liabilities listed above are included in other accrued
liabilities and other noncurrent liabilities.

          The Company files consolidated federal income tax returns
together with its domestic subsidiaries, other than Kaiser and its
subsidiaries.  Kaiser and its domestic subsidiaries are members of a
separate consolidated return group which files its own consolidated federal
income tax returns.

          The following table presents the tax attributes for federal
income tax purposes at December 31, 1997 attributable to the Company and
Kaiser (in millions).  The utilization of certain of these tax attributes
is subject to limitations.


<TABLE>
<CAPTION>

                                               The Company                   Kaiser
                                      --------------------------- ---------------------------
                                                       Expiring                    Expiring
                                                       Through                     Through
                                                    -------------               -------------
<S>                                   <C>           <C>           <C>           <C>
Regular Tax Attribute Carryforwards:
     Current year net operating loss  $        19.0          2012 $           -             -
     Prior year net operating losses           98.1          2011          33.2          2011
     Capital loss                               8.0          2002             -             -
     General business tax credits                .5          2002          10.4          2011
     Foreign tax credits                          -             -          50.0          2002
     Alternative minimum tax credits            1.2    Indefinite          21.6    Indefinite

Alternative Minimum Tax Attribute
     Carryforwards:
     Current year net operating loss  $        27.4          2012 $           -             -
     Prior year net operating losses          105.3          2011          17.6          2011
     Capital loss                               8.0          2002             -             -
     Foreign tax credits                          -             -          74.7          2002


</TABLE>

9.        EMPLOYEE BENEFIT AND INCENTIVE PLANS

          Postretirement Medical Benefits
          The Company has unfunded postretirement medical benefit plans
which cover most of its employees.  Under the plans, employees are eligible
for health care benefits (and life insurance benefits for Kaiser employees)
upon retirement.  Retirees from companies other than Kaiser make
contributions for a portion of the cost of their health care benefits.  The
expected costs of postretirement medical benefits are accrued over the
period the employees provide services to the date of their full eligibility
for such benefits.

          Postretirement medical benefits are generally provided through a
self insured arrangement.  The Company has not funded the liability for
these benefits, which are expected to be paid out of cash generated by
operations.  A summary of the components of net periodic postretirement
medical benefit cost is as follows (in millions):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Service cost - medical benefits earned
     during the year                         $        6.5  $        4.3  $        4.9 
Interest cost on accumulated postretirement
     medical benefit obligation                      44.4          47.5          52.7 
Net amortization and deferral                       (12.5)        (12.5)         (9.1)
                                             ------------  ------------  ------------ 
Net periodic postretirement medical benefit
     cost                                    $       38.4  $       39.3  $       48.5 
                                             ============  ============  ============ 

</TABLE>

          Included in the net periodic postretirement medical benefit cost
is $37.6, $38.3 and $47.9 for the years ended December 31, 1997, 1996 and
1995, respectively, attributable to Kaiser's plans.

          The postretirement medical benefit liability recognized in the
Company's Consolidated Balance Sheet is as follows (in millions):


<TABLE>
<CAPTION>

                                                            December 31,
                                                    ---------------------------
                                                         1997          1996
                                                    ------------- -------------
<S>                                                 <C>           <C>
Retirees                                            $       448.1 $       500.9
Actives eligible for benefits                                36.1          37.7
Actives not eligible for benefits                            67.5          72.3
                                                    ------------- -------------
     Accumulated postretirement medical benefit
          obligation                                        551.7         610.9
Unrecognized prior service cost                              86.3          98.6
Unrecognized net gain                                       137.4          72.4
                                                    ------------- -------------
     Postretirement medical benefit liability       $       775.4 $       781.9
                                                    ============= =============


</TABLE>

          The accumulated postretirement medical benefit obligation
attributable to Kaiser's plans was $544.5 and $602.8 as of December 31,
1997 and 1996, respectively.  The postretirement medical benefit liability
recognized in the Company's Consolidated Balance Sheet attributable to
Kaiser's plans was $765.6 and $772.6 as of December 31, 1997 and 1996,
respectively.

          The annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rates) are approximately
7.5% and 5.5% for retirees under age 65 and over age 65, respectively, and
are assumed to decrease gradually to approximately 5.3% in 2007 and remain
at that level thereafter.  Each one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement medical benefit obligation as of December 31, 1997 by
approximately $54.0 and the aggregate of the service and interest cost
components of net periodic postretirement medical benefit cost by
approximately $6.2.

          The discount rates and rates of compensation increase used in
determining the accumulated postretirement medical benefit obligation were
7.3% and 5.0% at December 31, 1997, respectively, and 7.8% and 5.0% at
December 31, 1996, respectively.

          Retirement Plans
          The Company has various retirement plans which cover essentially
all employees.  Most of the Company's employees are covered by defined
benefit plans.  The benefits are determined under formulas based on years
of service and the employee's compensation.  The Company's funding policy
is to contribute annually an amount at least equal to the minimum cash
contribution required by ERISA.

          The Company has various defined contribution savings plans
designed to enhance the existing retirement programs of participating
employees.  Under the MAXXAM Inc. Savings Plan (the "MAXXAM Savings Plan"),
employees may elect to defer up to 16% of their base compensation to the
plan.  For those participants who have elected to defer a portion of their
compensation contributions to the MAXXAM Savings Plan, the Company's
contributions consist of matching contributions of up to 4% of the base
compensation of participants for each calendar quarter.  Under the Kaiser
Aluminum Savings and Retirement Plan, salaried employees may elect to defer
from 2% to 18% of their compensation to the plan.  For those eligible
participants who have elected to make contributions to the plan, Kaiser's
contributions consist of matching 25% to 100% of contributions of up to 10%
of their compensation.

          A summary of the components of net periodic pension costs for the
defined benefit plans and total pension costs for the defined contribution
plans and non-qualified retirement and incentive plans is as follows (in
millions):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Defined benefit plans:
     Service cost - benefits earned during
          the year                           $       15.8  $       15.7  $       12.1 
     Interest cost on projected benefit
          obligations                                64.6          62.8          62.5 
     Return on assets:
          Actual gain                              (136.5)        (94.4)       (118.7)
          Deferred gain (loss)                       68.1          34.8          64.6 
     Net amortization and deferral                   10.1           8.0           8.7 
     Curtailment gain                                   -           (.6)            - 
                                             ------------  ------------  ------------
     Net periodic pension cost                       22.1          26.3          29.2 
Defined contribution plans                            5.1           3.1           5.4 
Non-qualified retirement and incentive plans          5.3          (3.2)          8.2 
                                             ------------  ------------  ------------
                                             $       32.5  $       26.2  $       42.8 
                                             ============  ============  ============


</TABLE>

          The total pension costs attributable to Kaiser's plans was $27.5,
$21.3 and $38.3 for the years ended December 31, 1997, 1996 and 1995,
respectively.

          The following table sets forth the funded status and amounts
recognized for the defined benefit plans in the Consolidated Balance Sheet
(in millions):


<TABLE>
<CAPTION>

                                                            December 31,
                                                    --------------------------
                                                         1997          1996
                                                    ------------  ------------
<S>                                                 <C>           <C>
Actuarial present value of accumulated plan
benefits:
     Vested benefit obligation                      $      821.6  $      768.9 
     Non-vested benefit obligation                          44.4          40.9 
                                                    ------------  ------------
          Total accumulated benefit obligation      $      866.0  $      809.8 
                                                    ============  ============

Projected benefit obligation                        $      918.0  $      854.7 
Plan assets at fair value, primarily common stocks
     and fixed income obligations                         (799.4)       (698.1)
                                                    ------------  ------------
Projected benefit obligation in excess of plan
     assets                                                118.6         156.6 
Unrecognized net transition obligation                       (.3)          (.5)
Unrecognized net gain (loss)                                 7.5          (9.0)
Unrecognized prior service cost                            (23.5)        (27.3)
Adjustment required to recognize minimum liability           5.4          13.7 
                                                    ------------  ------------
          Accrued pension cost                      $      107.7  $      133.5 
                                                    ============  ============

</TABLE>

          With respect to Kaiser's defined benefit plans, the projected
benefit obligation was $873.0 and $816.2 as of December 31, 1997 and 1996,
respectively.  This obligation exceeded Kaiser's fair value of plan assets
by $116.1 and $154.2 as of December 31, 1997 and 1996, respectively.

          The assumptions used in accounting for the defined benefit plans
were as follows (in millions):


<TABLE>
<CAPTION>

                                                            December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------- ------------  ------------
<S>                                          <C>           <C>           <C>
Rate of increase in compensation levels               5.0%         5.0%          5.0% 
Discount rate                                         7.3%         7.8%          7.5% 
Expected long-term rate of return on assets           9.5%         9.5%          9.5% 


</TABLE>

          The Company has recorded an additional pension liability equal to
the excess of the accumulated benefit obligation over the fair value of
plan assets.  The amount of the additional pension liability in excess of
unrecognized prior service cost is recorded as a reduction to stockholders'
equity.  In 1997, the pension liability adjustment decreased by $1.8.  In
1996 and 1995, the pension liability adjustment decreased by $11.0 and
increased by $4.7, respectively.  These adjustments were recorded net of a
related deferred federal and state income tax credit (provision) of $(0.8),
$(6.5) and $2.8, respectively, which approximated the federal and state
statutory rates.

          Incentive Plans
          Kaiser has an unfunded incentive compensation program, which
provides incentive compensation based upon performance against annual plans
and over a three-year period.

10.  MINORITY INTERESTS

          Minority interests represent the following (in millions):


<TABLE>
<CAPTION>

                                                            December 31,
                                                    ---------------------------
                                                         1997          1996
                                                    ------------- -------------
<S>                                                 <C>           <C>
Kaiser Aluminum Corporation:
     Common stock, par $.01                         $        42.9 $           -
     PRIDES                                                     -          98.1
Minority interests attributable to Kaiser's
     subsidiaries                                           127.7         121.7
                                                    ------------- -------------
                                                    $       170.6 $       219.8
                                                    ============= =============


</TABLE>

          The Company has recorded 100% of the losses attributable to
Kaiser's common stock since July 1993, as Kaiser's cumulative losses
through that date had eliminated Kaiser's equity with respect to its common
stock.  The redemption of Kaiser's Series A Mandatory Conversion Premiums
Dividend Preferred Stock (the "Series A Shares"), together with the
voluntary redemption of 181,700 shares of PRIDES in 1995, decreased
Kaiser's preferred equity, and reduced Kaiser's deficit in common equity,
by $136.2.  Accordingly, in 1995, the Company recorded an adjustment to
reduce the minority interests reflected on its Consolidated Balance Sheet
for that same amount, with an offsetting decrease in the Company's
stockholders' deficit.

          $.65 Depositary Shares (the "Depositary Shares")
          On September 19, 1995, Kaiser redeemed all 1,938,295 of its
Series A Shares, which resulted in the simultaneous redemption of all
19,382,950 Depositary Shares in exchange for (i) 13,126,521 shares of
Kaiser's common stock and  (ii) $2.8 cash in satisfaction of all accrued
and unpaid dividends and fractional shares of common stock that would have
otherwise been issuable.  As a result of the Company's sale of its
Depository Shares prior to September 19, 1995, the shares of Kaiser's
common stock which were issued upon redemption of the Series A Shares are
all held by minority stockholders.

          Conversion of PRIDES to Kaiser Common Stock
          During August 1997, the 8,673,850 outstanding shares of PRIDES
were converted into 7,227,848 shares of Kaiser common stock pursuant to the
terms of the PRIDES Certificate of Designations.  Further, in accordance
with the PRIDES Certificate of Designations no dividends were paid or
payable for the period June 30, 1997, to, but not including, the date of
conversion.  As a result of the equity attributable to the PRIDES being
converted into equity attributable to common stockholders, the Company
recorded a $64.8 adjustment to stockholders equity and a reduction in
minority interest of the same amount.

          Subsidiary Redeemable Preference Stock
          In 1985, KACC issued its Cumulative (1985 Series A) Preference
Stock and its Cumulative (1985 Series B) Preference Stock (together, the
"Redeemable Preference Stock") each of which has a par value of $1 per
share and a liquidation and redemption value of $50 per share plus accrued
dividends, if any, and have a total redemption value of $29.9 as of
December 31, 1997.  No additional Redeemable Preference Stock is expected
to be issued.  Holders of the Redeemable Preference Stock are entitled to
an annual cash dividend of $5 per share, or an amount based on a formula
tied to KACC's pre-tax income from aluminum operations when and as declared
by KACC's board of directors.

          Changes in Series A and B Stock are as follows (in millions):


<TABLE>
<CAPTION>

                                                   Years Ended December 31,
                                          ----------------------------------------
                                               1997          1996          1995
                                          ------------  ------------  ------------
<S>                                       <C>           <C>           <C>
Shares:
     Beginning of year                         634,684       737,363       912,167 
     Redeemed                                  (39,631)     (102,679)     (174,804)
                                          ------------  ------------  ------------
     End of year                               595,053       634,684       737,363 
                                          ============  ============  ============


</TABLE>

          Redemption fund agreements require KACC to make annual payments
by March 31 of the subsequent year based on a formula tied to KACC's
consolidated net income until the redemption funds are sufficient to redeem
all of the Redeemable Preference Stock.  On an annual basis, the minimum
payment is $4.3 and the maximum payment is $7.3.  KACC also has certain
additional repurchase requirements which are based, among other things,
upon profitability tests.

          The Redeemable Preference Stock is entitled to the same voting
rights as KACC common stock and to certain additional voting rights under
certain circumstances, including the right to elect, along with other KACC
preference stockholders, two directors whenever accrued dividends have not
been paid on two annual dividend payment dates or when accrued dividends in
an amount equivalent to six full quarterly dividends are in arrears. The
Redeemable Preference Stock restricts the ability of KACC to redeem or pay
dividends on common stock if KACC is in default on any dividends payable on
Redeemable Preference Stock.

          Kaiser Stock Incentive Plans
          Kaiser has a total of 5,500,000 shares of Kaiser common stock
reserved for grant under its incentive compensation programs.  At December
31, 1997, 3,536,653 shares were available for grant.

          Stock options granted pursuant to Kaiser's nonqualified stock
program are granted at the prevailing market price and generally vest at
the rate of 20% to 33% per year and have a ten year term.  Information
relating to nonqualified stock options is shown below.  The prices shown in
the table below are the weighted average price per share for the respective
number of underlying shares (in millions).


<TABLE>
<CAPTION>

                                       1997                        1996                        1995
                           --------------------------- --------------------------- ---------------------------
                               Shares        Price         Shares        Price         Shares        Price
                           ------------  ------------- ------------  ------------- ------------  -------------
<S>                        <C>           <C>           <C>           <C>           <C>           <C>
Outstanding at beginning
     of year                    890,395  $       10.33      926,085  $       10.32    1,119,680  $        9.85
Granted                          15,092          10.06            -             -             -             - 
Exercised                       (48,410)          8.33       (8,275)          8.99     (155,500)          7.32
Expired or forfeited            (37,325)         10.45      (27,415)         10.45      (38,095)          8.88
                           ------------                ------------                ------------ 
Outstanding at end of year      819,752          10.40      890,395          10.33      926,085          10.32
                           ============                ============                ============ 
                                                                                                              
Exercisable at end of year      601,115  $       10.53      436,195  $       10.47      211,755  $       10.73
                           ============                ============                ============ 


</TABLE>


11.  STOCKHOLDERS' DEFICIT

          Changes in stockholders' deficit were (in millions):


<TABLE>
<CAPTION>

                        Preferred
                          Stock           Common Stock
                                    ------------------------
                                                                                                Pension
                                                                 Additional     Accumulated    Liability    Treasury
                        ($.50 Par)     Shares     ($.50 Par)      Capital         Deficit     Adjustment      Stock        Total
                      ------------  ----------   -----------  --------------  -------------  -----------  -----------  -----------
<S>                   <C>           <C>          <C>          <C>             <C>            <C>          <C>          <C>
Balance,
     January 1,
     1995             $         .3          8.7  $       5.0  $         53.2  $      (302.9) $     (11.4) $     (19.5) $    (275.3)
     Net income                  -            -            -               -           57.5            -            -         57.5 
     Gain from
          issuance
          of Kaiser
          Aluminum
          Corporation
          common
          stock                  -            -            -             2.5              -            -            -          2.5 
     Redemption of
          Kaiser
          Aluminum
          Corporation
          preferred
          stock                  -            -            -            99.3           36.9            -            -        136.2 
     Additional
          pension
          liability              -            -            -               -              -         (4.7)           -         (4.7)
                      ------------  -----------  -----------  --------------  -------------  -----------  -----------  ----------- 
Balance, December 31,
     1995                       .3          8.7          5.0           155.0         (208.5)       (16.1)       (19.5)       (83.8)
     Net income                  -            -            -               -           22.9            -            -         22.9 
     Gain from
          issuance of
          Kaiser
          Aluminum
          Corporation
          common
          stock                  -            -            -              .9              -            -            -           .9 
     Treasury stock
          repurchases            -            -            -               -              -            -         (1.8)        (1.8)
     Reduction of
          pension
          liability              -            -            -               -              -         11.0            -         11.0 
                      ------------  ----------   ------------ --------------  -------------  ------------ -----------  ----------- 
Balance, December 31,
     1996                       .3          8.7          5.0           155.9         (185.6)        (5.1)       (21.3)       (50.8)
     Net income                  -            -            -               -           65.2            -            -         65.2 
     Gain from
          issuance of
          Kaiser
          Aluminum
          Corporation
          common
          stock due
          to PRIDES
          conversion             -            -            -            62.9            1.9            -            -         64.8 
     Gain from other
          issuances
          of Kaiser
          Aluminum
          Corporation
          common
          stock                  -            -            -             1.1              -            -            -          1.1 
     Treasury stock
          repurchases            -         (1.7)           -               -              -            -        (87.9)       (87.9)
     Reduction of
          pension
          liability              -            -            -               -              -          1.8            -          1.8 
     Gain on
          settlement
          of
          shareholder            -            -            -             2.9              -            -            -          2.9 
          litigation  ------------  ----------   -----------  --------------  -------------  ------------ -----------  ----------- 
Balance, December 31,
     1997             $         .3          7.0  $       5.0  $        222.8  $      (118.5) $      (3.3) $    (109.2) $      (2.9)
                      ============  ===========  ============ ==============  =============  ============ ===========  ===========


</TABLE>


          Preferred Stock
          The holders of the Company's Class A $.05 Non-Cumulative
Participating Convertible Preferred Stock (the "Class A Preferred Stock")
are entitled to receive, if and when declared, preferential cash dividends
at the rate of $.05 per share per annum and will participate thereafter on
a share for share basis with the holders of common stock in all cash
dividends, other than cash dividends on the common stock in any fiscal year
to the extent not exceeding $.05 per share.  Stock dividends declared
on the common stock will result in the holders of the Class A Preferred
Stock receiving an identical stock dividend payable in shares of Class A
Preferred Stock.  At the option of the holder, the Class A Preferred Stock
is convertible at any time into shares of common stock at the rate of one
share of common stock for each share of Class A Preferred Stock.  Each
holder of Class A Preferred Stock is generally entitled to ten votes per
share on all matters presented to a vote of the Company's stockholders.

          Stock Option Plans
          In 1994, the Company adopted the MAXXAM 1994 Omnibus Employee
Incentive Plan (the "1994 Omnibus Plan").  Up to 1,000,000 shares of common
stock and 1,000,000 shares of Class A Preferred Stock were reserved for
awards or for payment of rights granted under the 1994 Omnibus Plan of
which 843,000 and 910,000 shares, respectively, were available to be
awarded at December 31, 1997.  The 1994 Omnibus Plan replaced the Company's
1984 Phantom Share Plan (the "1984 Plan") which expired in June 1994,
although previous grants thereunder remain outstanding.  The options (or
rights, as applicable) granted in 1995, 1996 and 1997 vest at the
rate of 20% per year commencing one year from the date of grant.  The
Company paid $1.6 and $2.7 in respect of awards issued pursuant to the 1984
Plan for the years ended December 31, 1997 and 1995, respectively.  Amounts
paid in respect of awards issued pursuant to the 1984 Plan for the year
ended December 31, 1996 was not significant.  The following table
summarizes the options or rights outstanding and exercisable relating to
the 1984 Plan and the 1994 Omnibus Plan.  The prices shown are the weighted
average price per share for the respective number of underlying shares (in
millions).


<TABLE>
<CAPTION>

                                       1997                        1996                        1995
                           --------------------------- --------------------------- ---------------------------
                               Shares        Price         Shares        Price         Shares        Price
                           ------------  ------------- ------------  ------------- ------------  -------------
<S>                        <C>           <C>           <C>           <C>           <C>           <C>
Outstanding at beginning
     of year                    250,100  $       34.75      207,900  $       31.59      238,000  $       26.74
Granted                          98,500          41.71       45,000          48.84       36,000          45.15
Exercised                       (50,300)         26.11       (1,800)         15.31      (66,100)         21.52
Expired or forfeited             (1,500)         45.15       (1,000)         45.15            -              -
                           ------------                ------------                ------------
Outstanding at end of year      296,800          38.47      250,100          34.75      207,900          31.59
                           ============                ============                ============ 
                                                                                  
Exercisable at end of year      117,200  $       33.53      122,100  $       29.40       93,900  $       27.95
                           ============                ============                ============ 


</TABLE>

          Concurrent with the adoption of the 1994 Omnibus Plan, the
Company adopted the MAXXAM 1994 Non-Employee Director Plan (the "1994
Director Plan").  Up to 35,000 shares of common stock are reserved for
awards under the 1994 Director Plan.  In 1997, 1996 and 1995, options to
purchase 1,800 shares, 900 shares and 1,500 shares of common stock,
respectively, were granted to three non-employee directors.  The weighted
average exercise prices of these options are $43.19, $43.88 and $31.63 per
share, respectively, based on the quoted market price at the date of grant. 
The options vest at the rate of 25% per year commencing one year from the
date of grant.  At December 31, 1997, options for 1,800 shares were
exercisable.

          Shares Reserved for Issuance
          At December 31, 1997, the Company had 2,703,856 common shares and
1,000,000 Class A Preferred shares reserved for future issuances in
connection with various options, convertible securities and other rights as
described in this Note 11.

          Rights
          On November 29, 1989, the Board of Directors of the Company
declared a dividend to its stockholders consisting of (i) one Series A
Preferred Stock Purchase Right (the "Series A Right") for each outstanding
share of the Company's Class A Preferred Stock and (ii) one Series B
Preferred Stock Purchase Right (the "Series B Right") for each outstanding
share of the Company's common stock.  The Series A Right and the Series B
Right are collectively referred to herein as the "Rights."  The Rights are
exercisable only if a person or group of affiliated or associated persons
(an "Acquiring Person") acquires beneficial ownership, or the right to
acquire beneficial ownership, of 15% or more of the Company's common stock,
or announces a tender offer that would result in beneficial ownership of
15% or more of the outstanding common stock.  Any person or group of
affiliated or associated persons who, as of November 29, 1989, was the
beneficial owner of at least 15% of the outstanding common stock will not
be deemed to be an Acquiring Person unless such person or group acquires
beneficial ownership of additional shares of common stock (subject to
certain exceptions).  Each Series A Right, when exercisable, entitles the
registered holder to purchase from the Company one share of Class A
Preferred Stock at an exercise price of $165.00, subject to adjustment. 
Each Series B Right, when exercisable, entitles the registered holder to
purchase from the Company one one-hundredth of a share of the Company's new
Class B Junior Participating Preferred Stock, with a par value of $.50 per
share (the "Junior Preferred Stock"), at an exercise price of $165.00,
subject to adjustment.

          Under certain circumstances, including if any person becomes an
Acquiring Person other than through certain offers for all outstanding
shares of stock of the Company, or if an Acquiring Person engages in
certain "self-dealing" transactions, each Series A Right would enable its
holder to buy Class A Preferred Stock (or, under certain circumstances,
preferred stock of an acquiring company) having a value equal to two times
the exercise price of the Series A Right, and each Series B Right shall
enable its holder to buy common stock of the Company (or, under certain
circumstances, common stock of an acquiring company) having a value equal
to two times the exercise price of the Series B Right.  Under certain
circumstances, Rights held by an Acquiring Person will be null and void. 
In addition, under certain circumstances, the Board is authorized to
exchange all outstanding and exercisable Rights for stock, in the ratio of
one share of Class A Preferred Stock per Series A Right and one share of
common stock of the Company per Series B Right.  The Rights, which do not
have voting privileges, expire in 1999, but may be redeemed by action of
the Board prior to that time for $.01 per right, subject to certain
restrictions.

          Voting Control
          Federated Development Inc., a wholly owned subsidiary of
Federated Development Company ("Federated"), and Mr. Charles E. Hurwitz
beneficially own (exclusive of securities acquirable upon exercise of stock
options) an aggregate 99% of the Company's Class A Preferred Stock and
38.7% of the Company's common stock (resulting in combined voting control
of approximately 68% of the Company).  Mr. Hurwitz is the Chairman of the
Board and Chief Executive Officer of the Company and Chairman and Chief
Executive Officer of Federated.  Federated is wholly owned by Mr. Hurwitz,
members of his immediate family and trusts for the benefit thereof.

12.  COMMITMENTS AND CONTINGENCIES

          Commitments
          Minimum rental commitments under operating leases at December 31,
1997 are as follows: years ending December 31, 1998 - $32.5; 1999 - $37.2;
2000 - $32.9; 2001 - $29.9; 2002 - $27.2; thereafter - $134.7.  Rental
expense for operating leases was $35.6, $34.2 and $31.4 for the years ended
December 31, 1997, 1996 and 1995, respectively.  The minimum future rentals
receivable under noncancelable subleases at December 31, 1997 were $62.5.

          Environmental Contingencies
          Kaiser and KACC are subject to a number of environmental laws and
regulations, to fines or penalties assessed for alleged breaches of the
environmental laws and regulations, and to claims and litigation based upon
such laws.  KACC is currently subject to a number of lawsuits under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, (as amended by the Superfund Amendments Reauthorization Act of 1986,
"CERCLA") and, along with certain other entities, has been named as a
potentially responsible party for remedial costs at certain third-party
sites listed on the National Priorities List under CERCLA.

          Based on Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation
matters.  The following table presents the changes in such accruals, which
are primarily included in other noncurrent liabilities (in millions):

<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Balance at beginning of year                 $       33.3  $       38.9  $       40.1 
Additional amounts                                    2.0           3.2           3.3 
Less expenditures                                    (5.6)         (8.8)         (4.5)
                                             ------------  ------------  ------------
Balance at end of year                       $       29.7  $       33.3  $       38.9 
                                             ============  ============  ============


</TABLE>

          These environmental accruals represent Kaiser's estimate of costs
reasonably expected to be incurred based on presently enacted laws and
regulations, currently available facts, existing technology and Kaiser's
assessment of the likely remediation action to be taken.  Kaiser expects
that these remediation actions will be taken over the next several years
and estimates that annual expenditures to be charged to these environmental
accruals will be approximately $3.0 to $8.0 for the years 1998 through 2002
and an aggregate of approximately $8.0 thereafter.

          As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of remediation
are established or alternative technologies are developed, changes in these
and other factors may result in actual costs exceeding the current
environmental accruals.  Kaiser believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to an estimated 
$18.0.  As the resolution of these matters is subject to further regulatory
review and approval, no specific assurances can be given as to when the
factors upon which a substantial portion of this estimate is based can be
expected to be resolved.  However, Kaiser is working to resolve certain of
these matters.  Kaiser believes that KACC has insurance coverage available
to recover certain incurred and future environmental costs and is actively
pursuing claims in this regard.  However, no accruals have been made for
any such insurance recoveries, and no assurances can be given that Kaiser
will be successful in its attempt to recover incurred or future costs. 
While uncertainties are inherent in the final outcome of these
environmental matters, and it is impossible to determine the actual costs
that ultimately may be incurred, management believes that the resolution of
such uncertainties should not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.

          Asbestos Contingencies
          KACC is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
KACC or exposure to products containing asbestos produced or sold by KACC. 
The lawsuits generally relate to products KACC has not manufactured for at
least 20 years.  At December 31, 1997, the number of claims pending was
approximately 77,400 compared to 71,100 at December 31, 1996.  During 1997,
approximately 15,600 of such claims were received and approximately 9,300
were settled or dismissed.  During 1996, approximately 21,100 claims were
received and approximately 9,700 were settled or dismissed.

          Based on past experience and reasonably anticipated future
activity, Kaiser has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed through 2008.  There are
inherent uncertainties involved in estimating asbestos-related costs and
KACC's actual costs could exceed these estimates.  Kaiser's accrual was
calculated based on the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments, and the
advice of Wharton, Levin, Ehrmantraut, Klein & Nash, P.A. with respect to
the current state of the law related to asbestos claims.  Accordingly, an
asbestos-related cost accrual of $158.8, before consideration of insurance
recoveries, is included primarily in other noncurrent liabilities at
December 31, 1997.  While Kaiser does not believe there is a reasonable
basis for estimating such costs beyond 2008 and, accordingly, no accrual
has been recorded for such costs which may be incurred beyond 2008, there
is a reasonable possibility that such costs may continue beyond 2008, and
such costs may be substantial.  Kaiser estimates that annual future cash
payments in connection with such litigation will be approximately $13.0 to
$20.0 for each of the years 1998 through 2002, and an aggregate of
approximately $80.0 thereafter.

          Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs.  Claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from the insurance carriers. 
The timing and amount of ultimate recoveries from these insurance carriers
are dependent upon the resolution of these disputes.  Kaiser believes,
based on prior insurance-related recoveries with respect to asbestos-
related claims, existing insurance policies, and the advice of Thelen,
Marrin, Johnson & Bridges LLP with respect to applicable insurance coverage
law relating to the terms and conditions of these policies, that
substantial recoveries from the insurance carriers are probable. 
Accordingly, an estimated aggregate insurance recovery of $134.0,
determined on the same basis as the asbestos-related cost accrual, is
recorded primarily in long-term receivables and other assets at December
31, 1997.

          Subsequent to December 31, 1997, KACC reached agreements settling
approximately 25,000 of the pending asbestos-related claims.  Also,
subsequent to year-end, KACC reached agreements on asbestos-related
coverage matters with two insurance carriers under which the Company will
collect a total of approximately $18.0 million during the first quarter of
1998.  As the amounts related to the claim settlements and insurance
recoveries were consistent with the Company's year-end 1997 accrual
assumptions, these events are not expected to have a material impact on the
Company's financial position or results of operations.

          Kaiser continues to monitor claims activity, the status of
lawsuits (including settlement initiatives), legislative progress, and
costs incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from Kaiser's underlying assumptions. While uncertainties are
inherent in the final outcome of these asbestos matters and it is presently
impossible to determine the actual costs that ultimately may be incurred
and insurance recoveries that will be received, Kaiser currently believes
that, based on the factors discussed in the preceding paragraphs, the
resolution of asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

          OTS Contingency and Related Matters
          On December 26, 1995, the United States Department of Treasury's
Office of Thrift Supervision ("OTS") initiated a formal administrative
proceeding against the Company and others by filing a Notice of Charges
(the "Notice").  The Notice alleges, among other things, misconduct by the
Company, Federated Development Company ("Federated"), Mr. Charles Hurwitz
and others (the "respondents") with respect to the failure of United
Savings Association of Texas ("USAT"), a wholly owned subsidiary of United
Financial Group Inc. ("UFG").  The Notice claims that the Company was a
savings and loan holding company, that with others it controlled USAT, and
that it was therefore obligated to maintain the net worth of USAT.  The
Notice makes numerous other allegations against the Company and the other
respondents, including, among other things, allegations that through USAT
it was involved in prohibited transactions with Drexel, Burnham, Lambert
Inc.  The OTS, among other things, seeks unspecified damages in excess of
$560.0 from the Company and Federated, civil money penalties and a removal
from, and prohibition against the Company and the other respondents
engaging in, the banking industry.  The hearing on the merits of this
matter commenced on September 22, 1997, adjourned on December 19, 1997, and
is scheduled to recommence on June 16, 1998.

          On August 2, 1995, the Federal Deposit Insurance Corporation
("FDIC") filed a civil action entitled Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund v. Charles E. Hurwitz
(No. H-95-3956) (the "FDIC action") in the U.S. District Court for the
Southern District of Texas (the "Court").  The original complaint against
Mr. Hurwitz alleged damages in excess of $250.0 based on the allegation
that Mr. Hurwitz was a controlling shareholder, de facto senior officer and
director of USAT, and was involved in certain decisions which contributed
to the insolvency of USAT.  The original complaint further alleged, among
other things, that Mr. Hurwitz was obligated to ensure that UFG, Federated
and the Company maintained the net worth of USAT.  On January 15, 1997, the
FDIC filed an amended complaint which seeks, conditioned on the OTS
prevailing in its administrative proceeding, unspecified damages from Mr.
Hurwitz relating to amounts the OTS does not collect from the Company and
Federated with respect to their alleged obligations to maintain USAT's net
worth.

          The Company's bylaws provide for indemnification of its officers
and directors to the fullest extent permitted by Delaware law.  The Company
is obligated to advance defense costs to its officers and directors,
subject to the individual's obligation to repay such amount if it is
ultimately determined that the individual was not entitled to
indemnification.  In addition, the Company's indemnity obligation can,
under certain circumstances, include amounts other than defense costs,
including judgments and settlements.  The Company has concluded that it is
unable to determine a reasonable estimate of the loss (or range of loss),
if any, that could result from this contingency.  Accordingly, it is
impossible to assess the ultimate outcome of the foregoing matters or its
potential impact on the Company; however, any adverse outcome of these
matters could have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

          Other Matters
          The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters.  While
uncertainties are inherent in the final outcome of such matters and it is
presently impossible to determine the actual costs that ultimately may be
incurred, management believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.

          Rancho Mirage Litigation Settlement
          On December 8, 1997, the Delaware Chancery Court approved the
settlement of certain shareholder derivative actions brought in connection
with an exchange between Federated and MCOP of certain real estate assets
in Rancho Mirage, California.  In connection with the settlement, which was
closed in January 1998, MCOP received approximately $7.5 in cash and a 23.7
acre commercial development property owned by a subsidiary of Federated and
paid the plaintiffs' counsel $5.5 for attorneys fees and expenses.  In
addition, a subsidiary of Federated transferred to MCOP approximately $3.9
(liquidation value) of MCOP preferred stock while retaining the right to
purchase certain shares of common stock at a price of approximately $55.00
per share and canceled rights to purchase common stock valued at
approximately $1.0.  The transactions provided for in the settlement have
been reflected in the Company's financial statements for the year ended
December 31, 1997.

13.  DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS

          At December 31, 1997, the net unrealized loss on KACC's position
in aluminum forward sales and option contracts, (based on an average price
of $1,643 per ton or $.75 per pound of primary aluminum), natural gas and
fuel oil forward purchase and option contracts, and forward foreign
exchange contracts, was approximately $21.0.  Any gains or losses on the
derivative contracts utilized in KACC's hedging activities are offset by
losses or gains, respectively, on the transactions being hedged.

          Alumina and Aluminum
          Kaiser's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold. 
Primary aluminum prices have historically been subject to significant
cyclical price fluctuations.  Alumina prices as well as fabricated aluminum
product prices (which vary considerably among products) are significantly
influenced by changes in the price of primary aluminum but generally lag
behind primary aluminum price changes by up to three months.  Since 1993,
the average Midwest United States transaction price for primary aluminum
has ranged from approximately $.50 to $1.00 per pound.

          From time to time in the ordinary course of business, KACC enters
into hedging transactions to provide price risk management in respect of
the net exposure of earnings resulting from (i) anticipated sales of
alumina, primary aluminum and fabricated aluminum products, less (ii)
expected purchases of certain items, such as aluminum scrap, rolling ingot
and bauxite, whose prices fluctuate with the market price of primary
aluminum.  Forward sales contracts are used by KACC to effectively fix the
price that KACC will receive for its shipments.  KACC also uses option
contracts (i) to establish a minimum price for its product shipments, (ii)
to establish a "collar" or range of price for KACC's anticipated sales
and/or (iii) to permit KACC to realize possible upside price movements.  As
of December 31, 1997, KACC had sold forward, at fixed prices, approximately
109,850 and 24,000 tons of primary aluminum with respect to 1998 and 1999. 
KACC had also purchased put options to establish a minimum price for
approximately 52,000 tons with respect to 1998 and had entered into option
contracts that established a price range for an additional 243,600 and
124,500 tons with respect to 1998 and 1999.  Additionally, at December 31,
1997, KACC also held fixed price purchase contracts for 134,850 tons of
primary aluminum with respect to 1998.

          As of December 31, 1997, KACC had sold forward virtually all of
the alumina available to it in excess of its projected internal smelting
requirements for 1998 and 1999 at prices indexed to future prices of
primary aluminum.

          Energy
          KACC is exposed to energy price risk from fluctuating prices for
fuel oil and natural gas consumed in the production process. Accordingly,
KACC from time to time in the ordinary course of business enters into
hedging transactions with major suppliers of energy and energy related
financial instruments.  As of December 31, 1997, KACC had a combination of
fixed price purchase and option contracts for the purchase of approximately
41,000 MMBtu of natural gas per day during 1998.  At December 31, 1997,
KACC also held a combination of fixed price purchase and option contracts
for an average of 232,000 and 25,000 barrels of fuel oil per month for 1998
and 1999, respectively.

          Foreign Currency
          KACC enters into forward foreign exchange contracts to hedge
material cash commitments to foreign subsidiaries or affiliates.  At
December 31, 1997, KACC had net forward foreign exchange contracts totaling
approximately $136.6 for the purchase of 180.0 Australian dollars from
January 1998 through February 1999, in respect of its commitments for 1998
and 1999 expenditures denominated in Australian dollars.

14.  SEGMENT INFORMATION

          The following tables present financial information by industry
segment and by geographic area at December 31, 1997 and 1996 and for the
three years ended December 31, 1997, 1996 and 1995 (in millions).

          Industry Segments


<TABLE>
<CAPTION>

                                                                                   Real
                                         Bauxite                    Forest        Estate
                             Years         and       Aluminum      Products      and Other
                             Ended       Alumina    Processing    Operations    Operations   Corporate      Total
                          ----------   ---------- -------------  ------------  ------------ -----------  ---------
<S>                       <C>          <C>        <C>            <C>           <C>          <C>          <C>
Sales to
     unaffiliated
     customers                  1997   $    483.3 $     1,889.9  $     287.2   $       68.7 $         -  $ 2,729.1 
                                1996        508.0       1,682.5        264.6           88.2           -    2,543.3 
                                1995        514.2       1,723.6        242.6           84.8           -    2,565.2 
Operating income
     (loss)                     1997          6.8         167.2         84.9           (5.0)      (17.5)     236.4 
                                1996        (10.7)        114.4         73.0          (12.0)      (33.4)     131.3 
                                1995         37.2         179.3         74.3          (13.6)      (19.6)     257.6 

Equity in
     earnings
     (loss) of
     unconsolidated
     affiliates                 1997         (7.0)          9.9            -            3.2           -        6.1 
                                1996          1.8           7.0            -            2.3           -       11.1 
                                1995          3.5          15.7            -            (.1)          -       19.1 
Depreciation and
     depletion                  1997         28.4          56.7         26.1            4.2          .6      116.0 
                                1996         30.2          59.9         27.2            5.7          .5      123.5 
                                1995         30.0          58.4         25.3            6.2         1.0      120.9 

Capital expenditures            1997         28.4         100.1         22.9           22.3          .3      174.0 
                                1996         31.6         128.7         15.2           10.7          .4      186.6 
                                1995         30.2          49.2          9.9            8.2          .2       97.7 
Investments in and
     advances to
     unconsolidated
     affiliates                 1997         88.8          59.8            -           10.9           -      159.5 
                                1996        121.5          46.9            -           11.1           -      179.5 
Identifiable assets             1997        966.4       1,984.3        700.0          228.4       235.1    4,114.2 
                                1996      1,032.1       1,852.8        681.2          207.1       342.5    4,115.7 


</TABLE>

          Sales to unaffiliated customers exclude intersegment sales
between bauxite and alumina and aluminum processing of $193.2, $181.6 and
$159.7 for the years ended December 31, 1997, 1996 and 1995, respectively. 
Intersegment sales are made on a basis intended to reflect the market value
of the products.

          Operating losses for Corporate represent general and
administrative expenses of MAXXAM Inc. that are not attributable to the
Company's industry segments.  General and administrative expenses of Kaiser
are allocated in the Company's industry segment presentation based upon
those segments' ratio of sales to unaffiliated customers.

          GEOGRAPHICAL INFORMATION

          The Company's operations are located in many foreign countries,
including Australia, Canada, Ghana, Jamaica, and the United Kingdom. 
Foreign operations in general may be more vulnerable than domestic
operations due to a variety of political and other risks.  Sales and
transfers among geographic areas are made on a basis intended to reflect
the market value of products.  Geographical area information relative to
operations is summarized as follows (in millions):


<TABLE>
<CAPTION>

                         Years                                               Other
                         Ended     Domestic    Caribbean       Africa       Foreign     Eliminations     Total
                      ---------- ----------  ------------  ------------  ------------  ------------  ------------
<S>                   <C>        <C>         <C>           <C>           <C>           <C>           <C>
Sales to
     unaffiliated
     customers              1997 $  2,076.2  $      204.6  $      234.2  $      214.1  $          -  $    2,729.1 
                            1996    1,962.8         201.8         198.3         180.4             -       2,543.3 
                            1995    1,916.9         191.7         239.4         217.2             -       2,565.2 
Sales and
     transfers
     among
     geographic
     areas                  1997          -         121.7             -         197.3        (319.0)            - 
                            1996          -         116.9             -         206.0        (322.9)            - 
                            1995          -          79.6             -         191.5        (271.1)            - 

Operating income
     (loss)                 1997       87.3          11.6          72.2          65.3             -         236.4 
                            1996       37.9           1.6          27.8          64.0             -         131.3 
                            1995       79.0           9.8          83.5          85.3             -         257.6 
Equity in earnings
     (loss) of
     unconsolidated
     affiliates             1997        8.0             -             -          (1.9)            -           6.1 
                            1996        2.6             -             -           8.5             -          11.1 
                            1995        (.3)            -             -          19.4             -          19.1 

Investments in and
     advances to
     unconsolidated
     affiliates             1997       26.7          23.9             -         108.9             -         159.5 
                            1996       11.6          25.3             -         142.6             -         179.5 

Identifiable assets         1997    3,375.2         391.2         179.6         168.2             -       4,114.2 
                            1996    3,318.4         391.2         194.7         211.4             -       4,115.7 


</TABLE>

          Included in results of operations are aggregate foreign currency
translation and transaction gains of $13.2 and $5.3 for the years ended
December 31, 1997 and 1995, respectively.  Foreign currency translation and
transaction gains were immaterial in 1996.

          Export sales were less than 10% of total revenues during the
years ended December 31, 1997, 1996 and 1995.  For the years ended December
31, 1997, 1996 and 1995, sales to any one customer did not exceed 10% of
consolidated revenues.

15.   SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                             -----------------------------------------
                                                  1997          1996          1995
                                             ------------- ------------- -------------
                                                      (In millions of dollars)
<S>                                          <C>           <C>           <C>
Supplemental information on non-cash                                                  
     investing and financing activities:
     Capital spending accrual excluded from
          investing activities               $           - $        13.5 $           -
     Contribution of property and inventory
          in exchange for joint venture
          interest                                    10.6             -           1.3
     Timber and timberlands acquired,
          subject to long-term debt                    9.4             -            .6
     Net margin repayments for marketable
          securities                                     -             -           6.9
     Reduction of stockholders' deficit due
          to redemption of Kaiser preferred
          stock                                       64.8             -         136.2
     Repurchase of treasury stock, subject
          to short-term debt                          35.1             -             -
Supplemental disclosure of cash flow
     information:
     Interest paid, net of capitalized
          interest                           $       178.3 $       156.8 $       162.8
     Income taxes paid, net                           25.4          21.5          30.3


</TABLE>


16.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

          Summary quarterly financial information for the years ended
December 31, 1997 and 1996 is as follows (in millions):


<TABLE>
<CAPTION>

                                                     Three Months Ended
                                  ------------------------------------------------------
                                     March 31      June 30     September 30  December 31
                                  ------------  ------------  ------------  ------------
<S>                               <C>           <C>           <C>           <C>
1997:
     Net sales                    $      631.6  $      689.1  $      726.0  $      682.4 
     Operating income                     49.0          52.7          73.9          60.8 
     Net income                             .7          31.9          18.0          14.6 
     Earnings per share:
          Basic                            .08          3.72          2.17          1.84 
          Diluted                          .07          3.42          1.98          1.67 
1996:
     Net sales                    $      612.2  $      667.7  $      641.2  $      622.2 
     Operating income                     53.2          46.0           9.6          22.5 
     Net income (loss)                     5.8          16.9           5.3          (5.1)
     Earnings (loss) per share:
          Basic                            .66          1.95           .61          (.59)
          Diluted                          .61          1.79           .56          (.59)


</TABLE>